How the Rental Cash Flow Calculator Works
Monthly Mortgage Payment
We use the standard amortization formula: M = P[r(1+r)^n]/[(1+r)^n-1], where P = loan amount, r = monthly interest rate, n = loan term in months.
Effective Gross Income
Effective Gross Income = Monthly Rent x 12 x (1 - Vacancy Rate). This accounts for expected periods of vacancy between tenants.
Net Operating Income (NOI)
NOI = Effective Gross Income - Annual Operating Expenses (taxes + insurance + maintenance + management). Mortgage is NOT included in NOI.
Cap Rate
Cap Rate = NOI / Purchase Price. Expresses the property return assuming all-cash purchase. Useful for comparing properties independent of financing.
Cash-on-Cash Return
CoC = Annual Cash Flow / Cash Invested. Cash invested = down payment + estimated closing costs (2% of purchase price by default). This is your actual return on cash deployed.
Gross Rent Multiplier
GRM = Purchase Price / Annual Gross Rent. Lower is better — a GRM of 8 means you are paying 8 years worth of gross rent for the property.
Monthly Cash Flow
Monthly Cash Flow = Effective Monthly Rent - Monthly Mortgage - Monthly Operating Expenses. This is the bottom-line number every investor cares about.